COMMITMENTS AND CONTINGENCIES

12 Months Ended

Jun. 28, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Lease Commitments and Guarantees

We have, in certain cases, divested brands or sold restaurants to franchisees and have not been released from lease guarantees for the related restaurants. As of June 28, 2023 and June 29, 2022, we have outstanding lease guarantees or are secondarily liable for $16.9 million and $26.3 million, respectively. These amounts represent the maximum known potential liability of rent payments under the leases, but outstanding rent payments can exist outside of our knowledge as a result of the landlord and tenant relationship being between two third parties. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal 2024 through fiscal 2029. In the event of default under a lease by a franchisee or owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties.

We have received notices of default and have been named a party in lawsuits pertaining to some of these leases in circumstances where the current lessee did not pay its rent obligations. In the event of default under a lease by an owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws, including bankruptcy laws, govern our ability to pursue and recover amounts we may pay on behalf of such third parties. We recorded a $2.0 million and $3.1 million charge in fiscal 2023 and fiscal 2022, respectively, which are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income. These amounts are related to these leases and lawsuits and represent the low end of our estimated range of losses. We will continue to closely monitor our exposure.

Letters of Credit

We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of June 28, 2023, we had $5.8 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable within the next 11 months.

Cyber Security Litigation

In fiscal 2018, we discovered malware at certain Chili’s restaurants that may have resulted in unauthorized access or acquisition of customer payment card data. We settled all claims from payment card companies related to this incident and do not expect material claims from payment card companies in the future. In connection with this event, the Company was also named as a defendant in a putative class action lawsuit in the United States District Court for the Middle District of Florida (the “Litigation”) relating to this incident. In the Litigation, plaintiffs assert various claims at the Company’s Chili’s restaurants involving customer payment card information and seek monetary damages in excess of $5.0 million, injunctive and declaratory relief, and attorney’s fees and costs.

On July 11, 2023, the Eleventh Circuit Court of Appeals issued its order on our appeal of the district court’s class certification order. The majority (1) found that only one plaintiff sufficiently alleged standing, but that Plaintiffs’ allegation that all cards involved in the data breach were posted to the “dark web” constitutes misuse sufficient to establish Article III standing; (2) vacated and remanded the class certification decision for the district court to reconsider its predominance requirement; and (3) upheld Plaintiff’s “averaging” damages methodology. While the court’s decision to decertify the class is favorable, we believe the majority’s reasoning on the issues of standing and damages calculation is erroneous. Accordingly, we intend to file a petition for rehearing with the Eleventh Circuit. All matters at the district court remain stayed. We believe we have defenses and intend to continue defending the Litigation. As such, as of June 28, 2023, we have concluded that a loss, or range of loss, from this matter is not

determinable, therefore, we have not recorded a liability related to the Litigation. We will continue to evaluate this matter based on new information as it becomes available.

Legal Proceedings

Evaluating contingencies related to litigation is a process involving judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis. Accordingly, we review the adequacy of accruals and disclosures pertaining to litigated matters each quarter in consultation with legal counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the Consolidated Financial Statements.

We are engaged in various legal proceedings and have certain unresolved claims pending. Liabilities have been established based on our best estimates of our potential liability in certain of these matters. Based upon consultation with legal counsel, management is of the opinion that there are no matters pending or threatened which are expected to have a material adverse effect, individually or in the aggregate, on the consolidated financial condition or results of operations.